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Robustness and Fragility by Professor Nassim Nicholas Taleb, Wednesday 8th December 2010 – The Henry Jackson Society

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HatTip to Dave Lull

To prevent Black Swans from society, let me summarise two simple rules; one, do not give the manager of a nuclear plant an incentive bonus based on cost cutting; two, the captain goes down with his ship.  The first rule is about the avoidance of some risks and the second rule concerns the elimination of that form of capitalism that we have.  From that we can derive a whole host of heuristics.

If you let the system work itself, the giants will self destroy.  The regulations need to be done the right way.  The regulators in Basle are the ones who help bankers pile up risk.  We need regulations that help the small guy and help the economy to have protection against the risk takers.

COMMENT The Black Swan guy is back, and hes talking about you and me | 22122010 | Reactions – Global Insurance

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HatTip to Dave Lull

Every aphorism in the book is about a procrustean bed of sorts, he says in the book’s preface. “We humans, facing limits of knowledge, and things we do not observe, the unseen and the unknown, resolve the tension by squeezing life and the world into crisp commoditized ideas, reductive categories, specific vocabularies, and prepackaged narratives, which, on the occasion, has explosive consequences.”

So much of what he says could be aimed directly at the insurance underwriter, the broker, the modeler, the investor, the corporate risk manager, and the chief executive.

In fact, try attributing each of these examples to any of the aforementioned people above:

To bankrupt a fool, give him information.

In science you need to understand the world; in business you need others to misunderstand it.

An erudite is someone who displays less than he knows; a journalist and consultant, the opposite; most others fall somewhere in between.

It is as difficult to avoid bugging others with advice on how to exercise and other health matters as it is to stick to an exercise schedule.

Randomness is indistinguishable from complicated, undetected, and undetectable order; but order itself is undistinguishable from artful randomness.

Digested read: The Bed of Procrustes by Nassim Nicholas Taleb | Books | The Guardian

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This fellow apparently doesn’t think much of The Bed of Procrustes, or NNT for that matter, but in the interest of balance, and because the graphic is hilarious, I’m passing it along. HatTip to Dave Lull.

Digested read The Bed of Procrustes Nassim Nicholas Taleb
Illustration for the Guardian by Neal Fox.

Procrustes, in Greek myth, was the cruel owner of an estate in Attica who abducted travellers and cut off their heads to ensure they fitted his bed perfectly. Every aphorism here is about a Procrustean bed of sorts: faced with the imperfection of the unknown and the unobserved, we humans tend to backfit the world into reductive categories such that only someone of my immense intellect is able to point out the inherent futility of modern life.

Update: Dave sends a link to another NNT ‘hater’. This one doesn’t really warrant a quote, he’s not very clever and a quick look around leads me to conclude that hating is his MO. It also originates in the U.K.  http://www.standpointmag.co.uk/node/3651/full.  Anyway, there’s been enough activity in this area lately that I’ve decided to add a ‘Hater’ category. I’ll only share the best of them.

Tom Keene interviews Nassim Taleb on U.S. Economy, New Book – Video – Bloomberg

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Nassim Taleb www.bloomberg.com-2010-12-20

What if NNT had is own show! That I’d watch.

Dec. 17 (Bloomberg) — New York University professor Nassim Taleb talks about his new book “The Bed of Procrustes.”
Taleb, author of “The Black Swan: The Impact of the Highly Improbable,” also discusses the U.S. economy and financial regulation. Taleb speaks with Tom Keene on Bloomberg Television’s “Surveillance Midday.” (Source: Bloomberg)

10 Really Simple Financial Lessons to Live By (BRK-B, BZH, C, GS, NLY)

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8. A prophet is not someone with special visions, just someone blind to most of what others see.

Same as above. You’ll win by default if you simply avoid the mistakes others make. Those who made a fortune betting against housing didn’t have special insider knowledge. They simply didn’t believe that housing prices could go up forever.

9. The best test of whether someone is extremely stupid (or extremely wise) is whether financial and political news makes sense to him. 

One of the biggest disservices the media cranks out are daily market roundups that begin, “Markets fell/rose today on news that …” followed by a random and usually meaningless datapoint. Markets go up. Markets go down. Get over it and stop trying to connect the dots.

10. What they call "risk" I call opportunity; but what they call "low risk" opportunity I call a sucker problem. 

The past three years, explained in one line.